SCOTTISH GOVERNMENT
CAPITAL RETURN: GENERAL GUIDANCE FOR 2008-09
INTRODUCTION
1.
The Capital Return (CR) collects information on capital expenditure and capital
income on an accruals basis, for 2008-09. Accruals made for 2007-08 will have been
reversed in 2008-09. The return requires any outstanding amounts accrued in 2007-08 but
not yet paid to be re-accrued when making the return. This means that there is an expectation
that there will be no credit values recorded as actual expenditure for the year. The exception
will be where a sum accrued will not now be paid. The CR returns include both General
Fund services and Housing Revenue Account data.
2.
The CR collects information on an authority’s gross capital programme and how it is
to be funded. The CR also collects information on capital income raised from asset sales
(known as capital receipts) and the authority’s prudential indicators. The data collected will
be used to monitor forecast expenditure and receipts data and to provide HM Treasury with
regular updates. From 2007-08 we also require data on borrowing undertaken by local
authority controlled companies.
3.
In addition to collecting information on the local authorities capital expenditure the
CR return is also used to collect information on expenditure by a local authority which funds
capital projects undertaken by third parties for the public benefit e.g. private sector housing
grants. This expenditure is classified as capital for national accounts purposes and as such is
required by HM Treasury and the Office for National Statistics (ONS). To avoid doublecounting local authorities should not include any grants made to other local authorities. These
include the 32 councils, police and fire boards, bridge authorities or the regional transport
partnerships. These bodies will record the actual capital expenditure made with the grant, or
alternatively, will record a grant made to a subsequent third party in this section. This
information is only collected at year end – the final return for the year.
DEFINITION OF CAPITAL EXPENDITURE
4.
Capital expenditure is defined in section 39 of the Local Government in Scotland Act
2003 as that expenditure of the authority which falls to be capitalised in accordance with
proper accounting practice. The ‘Code of Practice on Local Authority accounting in the
United Kingdom: A Statement of Recommended Practice’ (the SORP) constitutes proper
accounting practice in accordance with section 12 of the 2003 Act. All expenditure which
falls to be capitalised in accordance with the SORP should be included in the return.
5.
Applying the SORP capital expenditure may include both Tangible and Intangible
Fixed Assets e.g. software licences.
6.
Assets acquired on terms meeting the definition of a finance lease are required to be
capitalised and should be included in the return. SSAP21 describes how to identify and
account for finance leases. A lease qualifying under SSAP21 as a finance lease will result in
the recognition of the asset in the authority’s balance sheet, with the value of the asset being
recognised as capital expenditure. This value should be included on the return. Any hire
1
purchase contracts that have similar characteristics to a finance lease and are of a financing
nature should be accounted for as finance lease and as such recorded on the return. A lease
meeting the definition of an operating lease will be a revenue transaction and should not
be recorded on the form.
7.
Paragraph 1 (2) of Schedule 3 of the Local Government (Scotland) Act 1975 provides
that ‘With the consent of the Secretary of State, a local authority may borrow, on such terms
and conditions as to repayment as the Secretary of State may in so consenting allow, such
sums as are required to meet expenses other than expenses to which sub-paragraph (1) above
relates, which the authority have power to incur in the exercise of any of their functions
(excluding functions relating to a public utility undertaking); but the Secretary of State shall
give such consent only if satisfied that the expenses are of such a nature that they should be
met by such borrowing.’ Borrowing by local authorities may only be undertaken to finance
capital expenditure. Scottish Ministers have agreed to allow a small relaxation and permit
local authorities to fund the cost of making grants to community groups to fund capital
projects to be met from borrowing, subject to certain conditions being satisfied. Before a
local authority can meet such costs from borrowing, consent from the Scottish Government is
required. For HM Treasury purposes we are required to include this expenditure as part of
the Scottish return on capital expenditure and borrowing. As such this expenditure and the
associated borrowing for such expenditure should be included in the return. Please note:
Regardless of inclusion in the capital return local authorities are not permitted to treat
the expenditure recorded on this return for such grants as capital expenditure within
their accounts. Separate guidance on how to apply for Scottish Government consent to
borrow for grants made to community groups to fund capital projects will be placed on the
Local Government Finance section of the Scottish Government website.
BORROWING OF LOCAL AUTHORITY CONTROLLED COMPANIES
8.
The return collects information on the gross borrowing and other long term liabilities
of local authority controlled companies. Borrowing is as defined in paragraph 83 of the
CIPFA Prudential Code. Other long term liabilities is as defined by paragraph 91 of the
Prudential Code. A local authority controlled company is one which the local authority is
required to include within its group accounts as a subsidiary or a joint venture. Definition of
subsidiary and joint venture are as set out in the CIPFA/LASAAC ‘Code of Practice on Local
Authority Accounting in the United Kingdom: A Statement of Recommended Practice’.
Nothing should be entered in respect of associates included in the Group accounts. Councils
should not include any share of borrowing or other long term liabilities included in group
accounts for police or fire boards, bridge authorities or regional transport partnerships.
OTHER POINTS
9.
For clarity, the following costs should be EXCLUDED from the return:
9.1
Expenditure on repairs and maintenance. These should be charged to a
revenue account.
9.2
The cost of capital works undertaken by a local authority as an agent for
someone else (whether another local authority, government department, government
agency or the private sector) and where that body reimburses the authority for the
work undertaken. Such expenditure will not result in a fixed asset on the balance
2
sheet of the authority undertaking the capital work, and as such should not be
recorded on the return.
9.3
Appropriation of capital assets from one service to another within the local
authority
10.
Acquisitions and disposals between authorities: Where one authority acquires an asset
(fixed or intangible) the acquiring authority should include the expenditure as capital
expenditure on their return and the selling authority should record the sale proceeds as a
capital receipt on their return.
11.
Joint Boards and Partnerships: Capital expenditure of a joint board or partnership
should be recorded on its own CR return; constituent authorities should not include
expenditure to or on behalf of such joint boards.
12.
The CR should include all capital income (receipts) on an accruals basis. The capital
income should be recorded against the service from which they were generated, NOT the
service on which the additional expenditure (as a result of the receipt) was incurred.
13.
The point of contact at the Scottish Government is:
Laura Thomson
Scottish Government
Statistical Support for Local Government
Office of the Chief Economic Advisor
3 – H (North)
Victoria Quay
EDINBURGH
EH6 6QQ
Tel: 0131 244 4083
e-mail: lgfstats@scotland.gsi.gov.uk
Statistical Support for Local Government website http://www.scotland.gov.uk/stats/lgfstats
3